After one couple in Montana adopted a child, they used the state’s adoption tax credit.
With the extra money, they were able to adopt another child, something they couldn’t have afforded without the credit, said Sen. Jill Cohenour, D-East Helena.
“It does not cost the state of Montana a lot, but it is meaningful to the folks that would use it to actually create families in the state of Montana,” said Cohenour, Senate minority leader.
Tuesday in presenting an amendment to Senate Bill 399, Cohenour shared the story from earlier testimony provided by an opponent of eliminating the adoption tax credit.
But the amendment to preserve that credit, along with four other amendments, didn’t fly, and the Senate passed the legislation that overhauls income tax in Montana 30-19 on second hearing.
Sen. Greg Hertz, R-Polson, argued the bill was designed to simplify Montana’s cluttered income tax system. For example, he said people in Colorado had just four pages to fill out, but by comparison, people in Montana have to fill out 12 to 14 pages.
Hertz, who sponsored the bill, said the bill wouldn’t be new to those who had been around a while. The Montana Legislature approved similar legislation in 2015, he said, but it was vetoed by the governor then, Democrat Steve Bullock.
He said the bill would help 50,000 Montana taxpayers with lower incomes drop off the tax rolls. Plus, it would get rid of credits and deductions going to “special interest groups.” He noted it would eliminate 25 rarely used tax credits but keep 15 that more people use.
“It makes things much easier,” Hertz said.
A fiscal summary of the proposal from the Governor’s Office of Budget and Program Planning notes it would cost Montana $110 million in less net revenue during the course the next four years. The breakdown of impact on the state’s general fund goes like this, according to the fiscal note summary: $17 million in Fiscal Year ’22, $29 million in FY23, $30 million in FY24, and $34 million in FY25.
The credits to be eliminated include those for college contribution, energy conservation, health insurance for uninsured, elderly care, and other alternative energy credits, according to the fiscal note. The note also says that with a shorter and simpler tax form, the Department of Revenue will be able to reduce its expenses some $250,000 in FY23, $702,000 in FY24 and $711,000 in FY25.
In Hertz’ eyes, SB399 is a cheaper way of cutting income taxes than SB159, a bill he carried at the behest of Gov. Greg Gianforte earlier in the session. That bill would have cut the top income tax rate to 6.75 percent — from 6.9 percent — but was amended to cut it down to 6.5 percent. A spokesman for GOP leadership said the caucus would look to pass both bills and reconcile them.
In pitching amendments, Democrats argued that working Montanans would be hurt by SB399 and were going to be picking up the tab for wealthier people. Cohenour, Sen. Shannon O’Brien, D-Missoula, and Sen. JP Pomnichowski, D-Bozeman, presented amendments that all failed.
Cohenour said an estimated 36,000 people who are middle class in Montana and earn less than $60,000 will see their taxes go up because of the bill. She said it will increase taxes on people who are unemployed, those who want to invest in alternative energy, and those earning the smallest paychecks who may just be getting back on their feet from the pandemic.
Plus, she said she feared that as legislators continued to enact policies that reduced revenue to state coffers, Montanans would soon have to take a serious look at a sales tax to fund budget obligations, as neighboring states do.
“This bill was brought last minute. It’s overly complicated. And it picks winners and losers,” Cohenour said.
On the floor, Pomnichowski presented an amendment to retain a policy in state law that exempts tips, unemployment benefits and health insurance premiums from being taxed. She said preserving wages for working people was especially important given the financial struggles people have faced in the pandemic and the push to restart the economy.
“We should not start taxing tip income,” she said.
Hertz, though, said waiters and waitresses in the front of a restaurant might get $300 or $400 in tips and not pay any taxes whatsoever, but the workers in the back have to pay: “It makes no sense for these individuals to not have to pay their fair share of taxes.”
Sen. Brian Hoven, R-Great Falls, agreed. He said the overall bill makes filing Montana taxes much less complicated. He argued that some people would pay a little bit more, but it would be just that, a “little bit.”
He also said he couldn’t believe that tips weren’t taxed and only recently learned that was the case in Montana. Yet he said all kinds of workers earn tips.
“It goes to all ranges of income levels,” Hoven said. “Tip income obviously needs to be taxed, and this bill does that.”
After its third reading, the bill will go to the House for consideration.
Reporter Arren Kimbel-Sannit contributed to this story.